On Monday, March 22, 2010, the Senate Banking Committee reported The Restoring American Financial Stability Act of 2010.
The bill is a comprehensive regulatory reform package that includes, among other things: creation of a systemic risk regulator (although this version creates a Financial Stability Oversight Council), creation of a resolution authority in some kind (although this version creates a “liquidation mechanism” within the, establishment of a bureau of consumer protection for financial products (housed within the Federal Reserve instead of as a stand-alone entity), enhanced regulation of over-the-counter derivatives, insurance companies, credit rating agencies, enhanced executive compensation and corporate governance standards, among myriad other provisions.
It is anticipated that the Dodd bill will undergo substantial negotiations in the weeks ahead as it moves to the Senate floor, potentially mid-year. As the Dodd bill was reported out of the Senate Banking Committee with a party-line vote of 13-10, it is anticipated that Chairman Dodd will seek the support of a Republican such as Ranking Member Shelby or Senator Corker to garner bipartisan backing. Provided a bill is passed in the Senate, that version would still need to be reconciled with the House’s version of regulatory reform legislation before a bill is sent to the president’s desk. This process of reconciliation could potentially extend well into the mid-year leading up to the November elections.
In his opening statements at last Monday’s markup, Chairman Dodd emphasized four components of the bill: resolution-like authority, systemic risk regulator, regulation of exotic instruments such as hedge funds and derivatives, and consumer financial protection.
Ranking Member Shelby praised the committee’s work, but indicated that he could not vote to support the bill as presently drafted. For example, Shelby criticized that forcing clearing on all derivatives ignores the risk of central clearing – and noted the need to carefully weigh the risk of central clearing with the benefits; he discussed the need to establish a rational regulatory framework for derivatives that allows for transparency and economic growth. Ranking Member Shelby also criticized the corporate governance provisions as not addressing the problems at hand.
Among the points of contention between Democrats and Republicans is the bill’s creation of a semi-autonomous Consumer Financial Protection Bureau as a consumer watchdog within the Federal Reserve to regulate products including mortgages, credit cards, and other financial products. The CFPB reflects a substantial change from Chairman Dodd’s previous proposal, which sought to create an independent new regulatory agency for consumer protection, rather than an office within a current agency.
Under the proposal, the CFPB would act as the consolidated regulator of consumer financial protection, assuming certain functions currently handled by various other agencies. The CFPB would conduct financial education programs, respond to consumer complaints, monitor the markets for consumer financial products and services, and supervise covered entities for compliance with Federal consumer financial law, among other functions. The CFPB would be authorized to examine and enforce the consumer financial regulations for, among other things, all mortgage-related businesses. Banks and credit unions with less than $10 billion in assets will be examined by the appropriate current bank regulator.
